Niche retailers look to prosper as consumer spending slips

Rental businesses appear to be moving beyond big-ticket items into smaller niche markets, as cautious consumers continue to look for ways to save money across all categories.

According to figures released by the Australian Bureau of Statistics, retail sales fell 0.1% month-on-month in December, despite forecasts of a 0.2% gain.

Westpac senior economist Matthew Hassan says the soft finish to 2011 marks the fourth successive year of disappointing sales growth for retail, indicating it is part of a long-term trend.

“The question, of course, is how much this reflects broader consumer demand and how much is due to specific issues facing the retail sector,” Hassan says.

According to Hassan, the December retail trade figures show a slowing in sales that is consistent with the weak readings on consumer sentiment and reports from consumer-sector businesses.

“As such, it suggests a genuine softening in demand is underway,” he says.

“With the weakening in labour markets set to slow household incomes and savings rates likely to stay at elevated levels, consumer demand is likely to remain soft through the first half of 2012.”

According to ANZ economic analyst Andrew McManus, there is hope for the retail sector, but businesses shouldn’t expect a full recovery in consumer spending anytime soon.

“The two RBA cash rate cuts in Q4 2011, the improvement in consumer confidence… and a tentative stabilisation in the labour market in January are positive signs,” he says.

“Nevertheless, the continuing trend towards spending on services, as well as price deflation, is likely to see nominal retail sales remain below long-run averages.”

Rather than lament over the lack of consumer spending on goods, several start-ups have built successful businesses based on the concept of renting rather than purchasing everyday items, tapping into niche markets.

Zookal is a textbook rental company believed to be valued at $5 million. It was founded by five university friends, aged 20 to 26, who were studying at the University of Technology in Sydney.

They started with 300 books and, by second semester, had turned over enough cash to double the size of their library.

Another rental business operating in a niche market is Open Shed, which recently won $10,000 in Nokia’s In Hindsight competition.

Founded by Lisa Fox and Duncan Stewart, Open Shed is a peer-to-peer site that allows users to rent each other’s belongings for occasional use.

Aimed at providing Australians more “resourceful and sustainable” lives, the business claims to save people money on items such as power drills for DIY use or bicycles for impromptu rides.

“With Open Shed, we’re trying to shape new consumer behaviour around collaborative consumption,” Fox says.